The Bank of Canada maintained its key interest rate at 5.0%, but did not rule out possible further increases, as price pressures remain high.
“Based on clearer signs that monetary policy is restraining spending and easing price pressures, the governing council decided to maintain the policy rate at 5%,” the central bank explained in a press release on Wednesday. .
“(The governing council) is, however, concerned about the slow progress towards price stability and increasing inflationary risks, and is therefore prepared to increase the policy rate again if necessary. »
Forecasters generally expected the Bank to choose the status quo, as economic data suggests that high interest rates are having the desired cooling effect on the economy.
“Even though the Bank of Canada has clearly explained why it does not need to raise rates again, we expect its hawkish rhetoric to persist,” said James Orlando, director of economic affairs at TD Bank. in a note to his clients.
Indeed, it must maintain strict financial conditions to ensure that growth and inflation continue to follow the trajectory projected by the Bank of Canada, he added.
Consumers and businesses are facing the highest interest rates in decades, leading to lower spending.
In addition to signs of slowing growth, inflation resumed its slowdown in September, with the annual rate falling to 3.8%.
The Bank of Canada also released its quarterly monetary policy report on Wednesday, which included new economic forecasts suggesting slowing economic growth and accelerating inflation in the near term.
The central bank now expects real gross domestic product (GDP) growth of 1.2% in 2023, compared to its previous forecast of 1.8%.
Growth is expected to weaken further in 2024, with real GDP increasing by 0.9%, before rebounding to 2.5% in 2025.
Inflation is still expected to return to the 2.0% target in 2025, but the central bank says it expects higher inflation in the short term.
The Bank of Canada projects that annual inflation will average around 3.5% until mid-2024.
The report highlights some risks surrounding its forecast, including the war between Israel and Hamas. With oil prices currently higher than expected, the central bank says an escalation of the war into a broader regional conflict could disrupt global oil supplies.